Middle East Oil Caldron Bubbles

IRAQ is playing its oil card.

In a dramatic bid to undermine the United Nations trade sanctions against it, the Arab nation is offering access to billions of barrels of oil to the first country to break ranks.

At a meeting in Baghdad last week, oil-industry executives from around the world were surprised by the detailed announcement of the biggest oil- field auction in more than half a century.

Iraq's oil minister, Dr. Safa Jawad al Haboubi, laid out a roster of oil fields able to produce 4.5 million barrels per day, and with proven reserves greater than all of those of North America. It's the biggest block of proven, low-cost petroleum fields outside of Saudi Arabia, oil analysts say.

Normally tight-lipped about petroleum deals,

23013the Iraqi's used the public forum to provide unusually detailed documentation of the oil fields' capabilities in order to guarantee attention and credibility in this effort to ''reintegrate itself into the world oil market,'' said a senior Iraqi oil official.

The ploy is likely to either heighten tensions between the US and other sanction-abiding nations or provoke a rapid disintegration of the sanctions, since the costs to sanction participants are now increasingly resented, say industry analysts.

Iraq's oil minister seasoned the bait by noting that ''serious negotiations'' were already under way. Their hands tied by sanctions, oil company officials from sanction-abiding nations, such as Canada, Australia, and Brazil, grumbled while French and Italian firms bargained. No United States companies were here.

Ministry officials and company representatives regularly slipped out of the conference (the first international oil meeting held in Iraq in decades) to hold private meetings and ''silent auctions.''

Iraqi officials signaled clearly that the rule is ''first come, first served'' -- the first countries whose oil companies signed would be the first to win access to the oil fields. The only hurdle is the set of sanctions, over which the US and Britain are becoming increasingly isolated.

Stakes in this highly politicized oil lottery are global, because the volumes offered are huge, the costs dramatically low, and the technical or geological risk all but nil. The only comparable event was the opening of Saudi Arabia to Aramco 60 years ago.

Behind the veil

Lifting the long tight veil of secrecy over technical oil data, Iraq's Ministry of Oil detailed a shopping list of 33 fields that are open for negotiation. All had long since been discovered. Some were explored and delineated 25 years ago by the Iraq Petroleum Company (IPC -- it was nationalized after 1972).

Others, like the super giant Majnoun field, had been found and tested just before the Iran-Iraq war in 1980 forced suspension of further work.

The French are in the vanguard of negotiations, say Iraqi officials, while US and British firms are conspicuously absent from the new oil bazaar in Baghdad, blocked by sanction-related regulations from any discussions whatsoever at risk of criminal prosecution while their competitors enjoy ''a free hand.''

M. Christope de Margerie, head of Middle East affairs for the French oil company, Total-Cie. Francaise des Petroles recalled that his company ''was born in Iraq'' and that inshaallah [God willing] it would return.'' The reference to the partitioning of the Iraqi oil resources after World War I was particularly apt.

At issue now is a new repartitioning of the Middle East industry that could change its face, shifting the balance toward Continental European and Asian companies at the expense of the US and British firms traditionally present.

Iraq's claims for its oil fields are judged plausible. Industry specialists, especially those privy to the older, pre-nationalization data on Iraq's geology, agreed that there was little, if any, hype in the estimated production capacities.

Ministerial-level interviews with the Monitor confirmed that comprehensive geological and reservoir analyses underlay the reserve and production estimates. In most cases, ministry officials could show results of years of well operations, confirming the studies, since some fields had experimentally been partially developed.

Conservative estimates

Mr. Faiz al-Shahin, undersecretary in the oil ministry, stated by way of corroboration that the ministry's studies on two larger fields had been given to the foreign negotiators whose technicians then actually calculated substantially higher recoveries and production rates than the ministry. He stated that ''some fields could be doubled,'' citing the Nasriyah field in the South as an example where Iraq estimated 6 billion barrels, whereas the potential contractor projected more than 10 billion in that one field.

Costs of oil-field development in Iraq are 10 or more times less than in the US, for example. An academic study published in 1993 indicated costs below $1.50 per barrel. The ministry claimed costs in the range of 50 to 85 cents per barrel. This compares with costs in the US or Canada, comparably calculated, of $5 to $7 per barrel, an order of magnitude higher, so that the lure of Iraqi oil is double -- not merely vast reserves but enticingly low costs as well. These costs, too, cross check well against the foreign companies' figures.

These fields, now announced as available, have been dormant for years. First, the original concessionaire, the IPC, rationed development, to Iraq's great chagrin. Second, the Iran-Iraq war precluded field development of the largest new fields, which were immediately adjacent to the Iranian border. Third, more recently, Organization of Petroleum Exporting Countries (OPEC) quotas and then the sanctions rendered development moot.

Suitors for the hand of the sleeping princess abounded. The French and Italians are the best-positioned. French negotiators had reached the point of redrafting details of minor clauses, such as insurance, typically the last steps prior to final signature, and confirmation is expected soon. But Irish, Australian, Korean, Brazilian, Canadian, and Russian groups were represented, and it is suspected that Iraq will distribute smaller plums much more widely in order to maximize countries' political commitment to lifting the sanctions.